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DJIA, S&P ETF Sell-Offs Indicate Growing Market Pessimism

The sell-off that started with growth plays has made its way up the chain, with the big guys suffering in tandem on the heels of an unfavorable housing report.

The iShares Russell 2000 Index ETF (IWM) was trading down .89 percent, as investors fled the more volatile small-sector, presumably in favor of safer, blue chip plays. However, the blue chips fared no better on Thursday trading action. The SPDR S&P 500 Index ETF (SPY) , the busiest ETF by volume, shed a full percent on the day. Its DJIAQ-tracking counterpart, SPDR Dow Jones Industrial Average (DIA) shed .95 percent.

The drop down can probably be attributed to a generally bearish sentiment that is beginning to take hold of retail and commercial investors alike. This market pessimism is illustrated in the drop down for the Financial Select Sector ETF SPDR (XLF) , and especially the SPDR S&P Regional Banking ETF (KRE), which tracks smaller lenders. As the less leveraged, more straightforward regional banks represent the “purest play” on the general economy, much more so than their investment bank counterparts, a sell-off in regional banks represents the purest example of growing market cynicism.

Predictably, what is bad for the bulls is good for the bears, and some of the largest ETF gainers on the day were those betting against the market optimists. The highly leveraged Direxion Daily Small Cap Bear 3X Shares ($TZA) gained 2.85 percent amid heavy volume. Additionally, the ProShares UltraShort S&P 500 (SDS) notched a two percent gain on the day, as investors clamored to profit off the supposedly worsening economic climate.

While one day in the market does not necessarily spell a trend, the ongoing growth play retreat, coupled with blue chip pullbacks and a lack of faith in the regional banking sector, certainly does not indicate that faith that the five year bull market will continue unabated is being seriously questioned.

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